Investors are beginning to pull back from the housing market as home prices and demand continue to recover, a recent survey found.

Investors’ share of home purchases dropped from 22 percent in April to 20.2 percent in May based on a three-month moving average, marking the steepest decline in investor activity in more than three years, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

The survey’s forward-looking indicator, the Investor Traffic Index, found that investor activity will continue to decrease in the coming months.

Survey respondents said investor activity has dropped off because rising home prices have chipped away at profit margins. Investors typically earn money from buying homes by flipping or renting them.

As TheStreet noted, Wall Street firms like Blackstone and Colony Financial have snapped up thousands of homes and converted them into rentals in order to capitalize on steep price discounts and high rents.

But the survey showed that purchases of real estate owned (REO) properties and short sales — often targets for investors — declined in May.

Carrington Holding and Och-Ziff are among the institutional investors that have recently pulled out of the market, TheStreet reported. Source: Inside Mortgage Finance via TheStreet

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